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3 min read Published on August 03, 2022.
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Written by Bankrate Written by

This article was written by using automated technology. It was then thoroughly checked for accuracy and editing by an editor from our editorial team.







Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers to take control of their finances through providing precise, well-studied information that break down complex topics into digestible chunks.







Reviewed by Mark Kantrowtziz Reviewed by Nationally acknowledged expert on student financial aid

Mark Kantrowitz is an expert on student financial aid including the FAFSA as well as scholarships, 529 plans, education tax benefits and student loans.









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An is a method of financing that permits you to purchase a vehicle by borrowing money from an lender. A loan is then repaid over a set period typically between two and seven years. The monthly payment amount is determined by the loan size, interest rate, and the term. How auto loans operate Approval for a vehicle loan is like other types of financing. The lender examines, evaluates and reviews your credit score and financial situation , and evaluates your creditworthiness on the basis of several factors. The lender will require proof that you can afford the vehicle and have a reliable source of income. Most of the time, this means you must have a job with an income that is steady and a minimum credit score that differs by lender, although there are some exceptions. Even having a great credit score however, the lender will take into consideration other factors to determine if you are a good applicant for an automobile loan. If you're approved and the lender issues you with a car loan that you pay monthly payments over a set schedule for 24 to 84 months. Amounts of auto loan amounts The amount you can get for a car is based on your monthly income and expenses as well as your credit score and the amount of debt you carry. The amount you borrow will also determine the amount you can afford. If you're shopping for a vehicle worth $40,000 as an example, but only be accepted for $35,000. A $5k down payment could place you in a position that you could still buy the vehicle. Interest rates on auto loan interest rates The rate of interest on your car loan is dependent upon your credit score, loan duration and the amount as well as lender. The highest rates are offered to people with good to excellent credit scores -- typically a score of 740 to 850. If you're interested in getting the best rate, look over your credit report, and request corrections, if necessary. Corrections must be made at least 30 days before you intend to apply -This gives you time to apply. It is also recommended to have more than three loan lenders, instead of just going to the dealer. This will ensure you get a good bargain. The terms of your auto loan conditions The terms of the terms of your auto loan will affect your monthly payments and the amount of interest you pay in total. The shorter the term, the higher your monthly payments will be -- but you'll also pay less interest, because there will be less time to accumulate. The majority of auto loans are for a period of two to seven years. For instance the case of a $25,000 loan with a five-year term and a 3 percent interest rate would result in $1,562 total interest paid. Similar amount with the exact rate on a 3 year term would be $938 total interest. Pay off of your auto loan repayment The process of paying off the loan is straightforward. You'll make regular monthly payments until you've paid the full amount of the car loan. When it's paid in full and you've received the title to the car. You might also be able to apply to the loan until it's fully completed if you're in a position to obtain a lower interest rate, but this isn't a guarantee. Terms of an auto loan terms to know It is important to know the elements that comprise an auto loan. Understanding these terms and the meaning they mean will help you better understand the loan and the terms you're signing on when you finance your car. The term "loan" simply is the length of time you'll be responsible for the loan. The longer the term is, the more costly your loan will ultimately be due to interest accrual. It's sometimes called the loan term or the repayment period. Interest rate: The interest rate is the percentage that you will be charged to borrow funds, however it doesn't include charges. APR: The annual percentage rate (APR) is the interest rate you'll be charged for borrowing the money, including fees. It also accounts for the term that you take out the loan. Down payment: This is the amount in cash you pay in advance when you purchase the car. It's recommended that you put down a deposit equal to 20% of the total cost. The amount you finance: This is the amount you're borrowing, and is typically based on your income and your ability to pay back the loan. This can also be referred to in the form of"the" loan amount. Monthly payment: The monthly payment is exactly what it sounds like: the amount you pay toward the loan every month. It is based on the term of the loan in terms of amount, interest rate and amount. Total cost: After you factor in the loan amount and the interest over the duration of the loan, you will have the total cost of the loan. Direct or. dealers financing Two main methods to finance a car either directly through a bank, credit union or online lender or through dealerships. Also known as"bank loan, "bank loan," is the process of applying for financing through a bank, credit union or online lender without having to go through a dealership. It is when a dealer works with an lender to provide you with the financing. The dealer will send your details to a variety of partners, who then offer the financing based on the information it receives back. While it's convenient, dealer financing tends to be more expensive in comparison to straight financing. There is often an additional charge added to the interest rate you pay for the loan which is which is a percentage that the dealership takes. Next steps Understanding the way auto loans work and the several kinds of loans will help you make an informed decision when you're ready to purchase an automobile. If you do a little research, you may even be able to save cash. Learn more


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Written by

The article was created using automation technology and thoroughly verified and edited by an editor from our editorial team.



Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to manage their finances with concise, well-studied data that parses otherwise complex topics into manageable bites.






Auto loans editor


Reviewed by Mark Kantrowtiz Reviewed by Nationally known student expert on financial aid

Mark Kantrowitz is an expert on student financial aid, including the FAFSA, scholarships, 529 plans as well as tax benefits for education and student loans.






Nationally acknowledged expert in student financial aid




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